Choosing the Right Mortgage
There are a variety of mortgage choices available to you and the option you choose should be the one that best fits your needs and your financial situation.
Competition among lenders is good for you as a borrower. It is wise to shop around and not limit yourself to a single source. Just make sure that you understand that multiple inquiries will affect your credit score so pick a couple that seem to offer the best solutions for you.
You can find out your mortgage options at a number of different financial institutions including:
- Savings and Loan Associations
- Credit Unions
- Commercial Banks
- Mutual Savings Banks
- Mortgage Companies
- Mortgage Brokers
When you meet with lenders be prepared to ask the following questions.
- What types of loans do you have available?
- For what types of loans do I qualify?
- Can I get a federally insured or guaranteed loan from you? (These loans usually require smaller down payments.)
- What about special loan programs like those offered by the Federal Housing Administration (FHA loans) or the Department of Veterans Affairs (VA loans)? (These loans are attractive to first time buyers and to military veterans.)
Types of Mortgage Loans
Conventional Mortgage. This is the most commonly used type and usually has the best rates. You’ll typically need at least 10% for a down payment and good credit. It can be for 15 or 30 years or “interest only” where you are not paying any principal in your payment.
Note: “Interest only” loans have a bit lower payment but you don’t pay off any of the loan balance when you make your regular payment.
Mortgage Insurance. This isn’t a mortgage type, but you need to know about it. If you put less than 20% down on a home, mortgage insurance protects your lender in case you quit making payments. The cost varies by type of loan so ask your Mortgage Professional about it with every loan you discuss. Mortgage insurance can now be a tax write-off depending on your income level, due to a recent change in the tax laws. Also, once you believe you have at least 20% equity, you should contact your lender to find out about getting rid of Mortgage Insurance, also known as PMI.
FHA Mortgage. Thought of as the first time home loan program but actually available to anyone. The down payment is only 3.5% and is more forgiving of lower credit scores. The interest rates are not as attractive as a Conventional Mortgage loan, but qualifying for the loan isn’t as tough either.
Note: Not all lenders can offer these type of loans.
VA Loan. This is a Zero down payment loan, but you must be a veteran.
USDA Rural Housing Loan. This is also a Zero down payment loan. This USDA Mortgage Loan can only be used in designated areas & towns, but their definition of rural may be more flexible than you think.
Adjustable Rate Mortgage (ARM). If you would prefer to keep payments low for the first few years of a loan, consider an Adjustable Rate Mortgage. There are ARM loans that adjust after the first year, the fifth year or at other pre‐determined intervals. If you make this choice understand that your payments will go up at some future date unless you refinance the loan. Adjustable rate loans got many home owners into trouble when their rates went up faster than expected.
Mortgage Loan Length and Other Factors
Other factors to consider are the length of the loan, the down payment and any fees or closing costs.Your financial status and your plans for how long you might stay in the house will also affect which loan might be best for you. If you are in it for the long haul and want the financial piece of mind in knowing your payment won’t change, then a 30‐year fixed rate loan may be best. If your goal is to build equity quickly or you may need to move in a shorter period of time you will want an 15 or 20 year loan.
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